An arm of the legendary Dallas commercial real estate firm Henry S. Miller Co. has agreed to enter bankruptcy proceedings.

Court records show that Henry S. Miller Commercial LLC – also known as Henry S. Miller Commercial Co. – agreed last week to an involuntary bankruptcy petition that creditors filed last summer. It agreed to file its own Chapter 11 bankruptcy filing shortly.

"They are in bankruptcy, and this is just the next procedural step of the process," said Marc Stanley of Dallas' Stanley, Mandel and Iola, which represented three creditors who filed the involuntary bankruptcy petition July 7 to force the issue.

According to Gerrit Pronske of Pronske & Patel PC, attorney for Henry S. Miller Cos., the rift with creditors stems from a lawsuit Henry S. Miller lost earlier this year. That suit involved a deal Miller Co. brokered with a would-be buyer who now cannot be located and resulted in a $9 million civil judgment against Miller Co.

The client, James Flaven, attempted to buy eight apartment complexes and other buildings owned by the defendants but didn't actually have the money he promised; the owners went after Miller Co., alleging the company should have known the buyer wasn't legitimate.

The bankrupt entities have paid off all creditors in full except for the $9 million judgment, Pronske said Friday.

Meanwhile, Henry S. Miller Cos. is appealing the verdict, suing the law firm that represented it, and expects to have much of the settlement paid.

Since the judgment, the company has shifted its management contracts to another Miller Co. entity, Pronske said, by allowing them to expire and renewing them with another unit.

The entity filing for bankruptcy protection has no employees and minimal operations, Pronske said.

Technically, nothing from the bankrupt entities was moved, which would be disallowed by most bankruptcy courts. Pronske expects the creditors to challenge Miller Cos.' defensive move, but "we think they won't get anywhere with it," he said Friday.

"The involuntary bankruptcy filing against Commercial Co. and its subsequent conversion to a Chapter 11 proceeding of this one entity does not impact in any way the ongoing successful operations of Dallas-based Henry S. Miller Brokerage LLC, which continues to operate normally and remains well-respected throughout Texas," he said in the statement.

The July petition from creditors asked the court to force the company into Chapter 7 liquidation, meaning a judge could force the company to dissolve in order to satisfy its debts. Henry S. Miller Co. can try to file it as a Chapter 11 reorganization, meaning it would try to build a plan to repay creditors and emerge from court protection.

But whether the bankruptcy will remain a Chapter 11 or convert to a Chapter 7 will be up to the federal judge.

"We will try to move it back to a Chapter 7," Stanley said Friday. The three creditors are BNC Lake Jackson Village LLC, Dallas Clubview Gardens LP and Woodside Apartments LP.

Henry S. Miller operates under many names, each one registered with the Texas secretary of state.

More than 80 corporate entities are registered at 5001 Spring Valley Road, the headquarters of Henry S. Miller Cos. Most of those have to do with Henry S. Miller, including Henry S. Miller Commercial LLC.

The company owned Highland Park Village on Preston Road for three decades before selling it this year for $170 million. Henry S. Miller also developed Preston Royal shopping center.

North Texas' commercial real estate market has been hit hard by vacancies and the general economic slowdown, which has put tremendous pressure on brokers and management companies.

The company's founder, Henry S. Miller, died Dec. 5 at age 95.

In 1984, the Miller family sold the real estate company to Grubb & Ellis Co. of California for $47 million – at that time, one of the highest prices ever paid for a regional real estate firm.

The family later bought back the residential sales business and re-established the commercial operation, Henry S. Miller Co., which still has extensive operations in North Texas.

Real estate editor Steve Brown contributed to this report.

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